ECB bond buys were swayed by market swings: Lane

PaulHannon

Adjustments to the monthly rate of bond purchases by the European Central Bank have partly been a response to changing conditions in global financial markets, a member of the ECB governing council said Tuesday.

The ECB last month said it would buy EUR60 billion ($64.6 billion) of bonds a month from April through the end of this year, down from EUR80 billion at present. That marked a return to the initial scale of bond purchases between March 2015 and March 2016.

Speaking to investors in Dublin on Tuesday, Central Bank of Ireland Gov. Philip Lane said those changes in volume were partly attributable to swings in global financial markets.

"Adverse shifts in external financial conditions constitute a risk factor for the success of the ECB's monetary strategy," he said. "The exposure of the euro area to fluctuations in global financial conditions helps to explain the flexible nature of the ECB's asset-purchase program."

The March 2016 announcement of increased bond purchases followed a period of declines across a number of global financial markets, while later 2016 was characterized by gains.

"The global financial environment plays an important role in determining the financial conditions facing European firms and households, while the responses of global investors are central to the transmission mechanism for monetary policy operations," he said.

With inflation picking up in the eurozone, and economic growth remaining solid, some analysts expect the ECB to reduce the monthly rate of bond purchases toward the end of this year.

"We anticipate a very gradual and cautious reduction of the purchases in the second half of this year, with an additional cut in the first half of 2018," said Jean-Michel Six, chief economist for Europe, the Middle East and Africa at Standard & Poor's.

Mr. Lane's comments suggest any such decision may depend as much on the performance of global financial markets as on the strength of the eurozone economy.

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